PF in equities: How investors can now track their money 

PF in equities: How investors can now track their money 

Context

The Employees’ Provident Fund Organisation (EPFO) decides ways to account for and disburse investments in Exchange Traded Funds (ETFs)

How much of EPFO’s money is invested into ETFs?

While the Fund invested five per cent of the annual incremental corpus in equities in 2015-16, it raised this to 10% last fiscal. The investment limit has now been raised to 15% by the Central Board of Trustees (CBT) in its 218th meeting held on May 27, 2017. Accordingly, the estimated investment in ETF for the current financial year is approximately Rs. 22,500 crore.

How does the new policy work?

  • Under the proposed mechanism, when a subscriber decides to withdraw her PF accumulations, while the investment in debt instruments would be paid back with the accumulated interest, on the remaining 15% invested in equities, the payment will be calculated by multiplying the number of accumulated units with the prevailing market price of the ETFs.
  • As an example, of, say, an accumulated corpus of Rs 1,000, if Rs 150 is the equity component and the price of a single unit at the time of exit is Rs 10, the subscriber will get 15 units in her account. At the time of exit, the subscriber would have an option to defer the withdrawal of the equity investment for up to three years if she thinks that can fetch her better returns in the coming years
  • Option for cash & Equity: So, when a subscriber wants to withdraw her savings from PF, she can opt for cash or equity
  • Subscribers would also have the option to withdraw the non-equity component and keep the ETF units in their account even after retirement or in the case of early withdrawal
  • If a subscriber wishes to withdraw both equity and cash components, she would have to mention this in the withdrawal application. Whenever the subscribers take an advance or settle their PF accounts, the ETF units would be liquidated by the EPFO
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